Some manufacturing workers in the United States -- such as those who labored in huge factories making basic steel -- have suffered as they've seen their jobs leave America for low-wage countries. But for workers as a whole, the truth about globalization and inequality is the opposite of what the protectionists claim. There are three caveats to the steel worker's story and two larger perspectives on inequality. One caveat is that protectionists enormously exaggerate the negative effects of globalization by attributing virtually all manufacturing job losses to competition with China. We are told by union leaders and some politicians that America is exporting millions of jobs to China. This is absolutely untrue. Scholarly studies show that most job losses in the United States are attributable to domestic causes such as increased domestic productivity. A few years ago it took 40 hours of labor to produce a car. Now it takes 15. That translates into a need for fewer workers. Protectionists who blame China for such job losses are being intellectually dishonest. In fact, both China and the U.S. have lost manufacturing jobs due to rising productivity, but China has lost ten times more -- a decline of about 25 million Chinese jobs from over 54 million in 1994 to under 30 million ten years later. A second caveat is that there are two ways to increase people's standard of living. One is to increase their wages. The other is to decrease prices so that they can buy more things with the same amount of money. The ability to buy inexpensive, quality Chinese-made shoes and Japanese-made cars at lower prices disproportionately benefits lower income Americans. The Wall Street banker who pays $350 for Church's shoes benefits relatively little, but the janitor who buys shoes for $25 rather than $50 at Payless or Target or Wal-Mart benefits greatly. Lower prices due to imports from China alone -- ignoring all other similar results of globalization -- probably raise the real incomes of lower income Americans by 5 to 10 percent. That's something no welfare program has ever accomplished. A third caveat is that the protectionists never mention the jobs created and saved by globalization. If General Motors avoids bankruptcy, as seems likely, one important reason will be the profits it has made by selling cars in China. The vast China market, and the ability of American corporations to expand and refine their operations though a division of labor with China, creates many high level jobs in U.S. operations ranging in diversity from Motorola to IBM to Caterpillar to Boeing to farming. The first of the larger perspectives on globalization is that open economies adjust faster to their real competitive advantages, allowing them to employ their own people. The most recent U.S. unemployment rate was 4.4 percent. France, along with other relatively protected economies, typically has twice as high a proportion of the population unemployed because their workers are stuck in inappropriate jobs. Still more protected economies, like many in Latin America, often run much higher rates of unemployment -- up to 40%. Economies more open than the U.S. -- like Singapore and Hong Kong -- historically run lower rates of unemployment. The worst inequality is between families whose breadwinners have jobs and those who don't. Globalization minimizes that problem. Globalization has brought countries with about 3 billion people from subhuman conditions of life into modern standards of living with adequate food, basic shelter, modern clothing rather than rags, and life spans that are over 60 rather than under 45. (In the early 1950s China's life expectancy was 41 years, in 2005 it was 72.7 years. This is the greatest reduction of inequality that has happened in human history.2) Jagdish Bhagwati, "Technology, not Globalisation, Drives Wages Down," Financial Times, January 3, 2007:
Lou Dobbs of CNN, the labour groups? think-tank Economic Policy Institute and nearly all the Democrats newly elected to Congress believe that globalisation has much to do with the economic distress of the working and middle classes. Therefore they have coherence on their side when they want to lean on the door ? even to close it ? on trade with poor countries and occasionally on unskilled immigration from them. Proponents of globalisation, however, find themselves in a politically implausible position: they typically skirt around and hence accept this ?distributional? critique of globalisation ? yet nonetheless propose that those adversely affected should accept globalisation but be aided so as to cope with their affliction in other ways. As it happens, globalisation?s supporters are on firmer ground than they fear. Examine the common arguments linking globalisation to the distributional distress and little survives.... The decline in unionisation has been going on for longer than the past two decades of globalisation, shows no dramatic acceleration in the past two decades and is to be attributed to the union-unfriendly provisions of the half-century-old Taft-Hartley provisions that crippled the ability to strike.... The culprit is not globalisation but labour-saving technical change that puts pressure on the wages of the unskilled. Technical change prompts continual economies in the use of unskilled labour. Much empirical argumentation and evidence exists on this. But a telling example comes from Charlie Chaplin?s film, Modern Times. Recall how he goes berserk on the assembly line, the mechanical motion of turning the spanner finally getting to him. There are assembly lines today, but they are without workers; they are managed by computers in a glass cage above, with highly skilled engineers in charge. Such technical change is quickly spreading through the system. This naturally creates, in the short-run, pressure on the jobs and wages of the workers being displaced.... The pressure on wages becomes relentless, lasting over longer periods than in earlier experience with unskilled labour-saving technical change. But this technical change, which proceeds like a tsunami, has nothing to do with globalisation.One slight cavil -- that last paragraph by Bhagwati strikes me as a bit of a stretch. I have to think that globalization is one of the drivers for greater technical change. 3) Susan Aaronson, "Labor Rights Not Optional," TomPaine.com, January 5, 2007:
[Both] the Democratic alternative and the current Bush administration approach do little to bolster the demand in developing countries for strong labor protections. Neither approach facilitates the ability of citizens in our trade partners to participate in and monitor labor rights enforcement. In countries such as Oman, a U.S. free trade partner, workers cannot easily influence their government or obtain due process in administrative procedures. In addition, some of America?s free trade agreement partners do not provide their citizens with full information about their labor rights under the law. As a result, it is difficult for activists to monitor their government and hold it accountable. Labor rights advocates should take a page from the environmental chapters of several recent free trade agreements. In 2004, Democratic Senator Max Baucus pressed U.S. trade policymakers to strengthen public participation provisions and embed them in every future trade agreement. The Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) is the first trade agreement built on Baucus? suggestions. It includes both a mechanism and secretariat that allows citizens from any one of the seven signatory nations to challenge enforcement of environmental laws. Moreover, the trade agreement requires policymakers to respond to these complaints. To ensure the viability of this model, the United States agreed to fund the first year of the secretariat?s work. In addition to setting up a complaint mechanism, trade and/or environmental ministries in each of the CAFTA countries reached out to their constituents on the environmental chapters. They held hearings, called for public comments, and published their new regulations on the web and in print. Each environment ministry developed a website on environmental activities and outreach. USTR has agreed to replicate this model in other free trade agreements with Colombia and Peru. But these citizen submission strategies should not be limited to the environmental chapters of free trade agreements. The U.S. government should adopt a similar approach in the labor chapters as well. As the Democrats have promised, the U.S. first should ask its trade partners to ensure that their labor laws meet internationally accepted labor standards before negotiating a trade agreement. In addition, policymakers should also include provisions that ensure public comment on labor law development and or enforcement; allow citizens to petition their government regarding labor law violations; and set up a complaint and hearing process related to labor rights. By so doing, the U.S. would be strengthening local labor movements as well as expanding grassroots pressure for democratic accountability. America?s founding fathers recognized that democracy and good governance could not flourish if the public did not participate in decision making. In the long run, good governance, like democracy, can?t be exported. But the U.S. can use trade policy to help workers abroad influence and monitor labor rights in their home countries.UPDATE: Brad Setser protests in the comments about the Overholt piece -- which reminds me that I should have linked this post of his from last week.
Some think that the new Democratic congressional majority will be bad for trade policy. While it is true that some candidates criticized trade in their campaigns, I believe that the new Congress will have both the desire and opportunity to renew U.S. trade policy, with a unifying purpose that Americans can understand and support. Through trade, we must bolster the nation's innovative economy in an increasingly global marketplace. At the same time, we must tackle with equal vigor the negative domestic consequences of globalization, from trade deficits to job losses. Congress should begin by renewing the administration's fast-track negotiating authority for trade agreements. The current grant expires in June, and trading partners will not negotiate trade agreements with us unless Congress gives the president the ability to bring these agreements to fruition.... Fast-track authority should be improved as it is renewed, with better trade enforcement capability and better environmental and labor provisions. By making those changes, we can protect American interests, project America's values, and help to create consumer classes capable of purchasing more U.S.-made goods. And as we address expiring fast-track authority, we must take on -- head-on -- globalization's downsides, especially worker displacement and the unsustainable trade deficit. The trade deficit requires action on several fronts, which include beefing up U.S. export promotion programs and dedicating more time and resources to trade enforcement. We must also recognize that the trade deficit has causes closer to home, especially Americans' negative savings rate. When it comes to helping workers, we must make the Trade Adjustment Assistance (TAA) program, which expires in September, more reflective of today's innovative economy. TAA is our commitment that America will provide wage and health benefits while trade-displaced workers retool, retrain, and find better jobs. And a renewed TAA must do what today's program does not. TAA must be available to the eight out of 10 American workers who make their money in services professions; and it must apply to all workers displaced by trade, not just those affected by free-trade agreements. In fact, we should seriously examine the idea of expanding TAA into "GAA" -- Globalization Adjustment Assistance that would offer benefits not only to workers displaced by trade, but to those displaced by all aspects of globalization. In addition to these new priorities, we must refocus current trade efforts. The Doha round is of obvious importance, but the world's economies do not appear ready to make the hard choices necessary to bring the round to an ambitious conclusion. Doha may yet progress in time, as the Uruguay round did after 1990. But until then, America should move forward on commercially significant initiatives with our largest trading partners. We should lay the foundations for a future free-trade agreement with the European Union and Japan by concluding a first ever free-trade agreement in services. We should stitch our current patchwork quilt of free-trade agreements into a seamless, coherent network that we can later open to other countries. Even more immediately, we must enforce China's trade and investment commitments. Doing that will help to boost the U.S. gross domestic product by $86.5 billion over the next three years.There are three ways to interpret this essay:
1) Baucus, representing pro-trade Democrats, is laying down a marker against protectionist Democrats. For Sherrod Brown, Byron Dorgan, James Webb, etc., he's saying, "It's great that you won your elections with economic populism, but now you have to actually try and craft policy that does not trigger trade wars, runs on the dollar, global recessions, economic development, etc. We agree that cushioning the losers is important, and we're with you on bolstering labor and environmental standards, but let's play like grown ups, shall we?" 2) Baucus, representing the Democratic caucus, is trying to get the Bush administration to sign off on Democratic policy proposals with a veneer of soothing rhetoric. When you boil down the policy proposals, what Baucus is saying doesn't differ all that much from Sherrod Brown and Byron Dorgan: inserting stringent labor and environmental standards into FTAs, "trade enforcement," etc. He's just doing it minus the crackpot economic theories and idiotic rhetoric. Because Dorgan and Brown are so far out there, however, Baucus suddenly looks reasonable proposing something as amorphous as "Globalization Adjustment Assistance." 3) Baucus isn't entirely sure what he's saying. Again, see the GAA. And the lack of suggestions for increasing U.S. savings. Then again, it's only an op-ed, so specificity is tough.I'll be charitable and say that the op-ed is 40% of (1), 25% of (2), and 35% of (3). One last point -- Baucus embrace of a service pact with the EU, coming so soon after Angela Merkel's quasi-TAFTA proposal, makes me wonder if the Bush administration will become more enthusiastic about the proposal -- or run away, scared it's an EU-Blue State conspiracy.
Angela Merkel, German chancellor, will this month launch a sweeping initiative for the harmonisation of US and European legislation to boost investment flows and trade between the world?s largest economic blocs. Initial talks will review financial market regulations, including delisting rules, which many US-listed European companies feel are too cumbersome, as well as intellectual property law. Ms Merkel is also seeking mutual recognition of technical standards for products such as cars.... Her ambition is to create a single transatlantic market for investors, with common rules and standards on issues such as intellectual property and financial regulation. However, her initiative may face opposition from a more protectionist US and other EU member states.... ?Our economic systems are based on the same values,? said Ms Merkel. ?We have learnt how to combine the Anglo-Saxon and Continental European legal systems, which are very different from one another . . . think transatlantic co-operation will be more straightforward in many areas than might appear at first glance.? Ms Merkel?s initiative marks the EU?s first attempt to achieve a transatlantic single market since a similar move by the European Commission in 1998 petered out because of French opposition. Formal negotiations on drafting the partnership should start at the EU-US summit in May, she said. Matthias Wissmann, chairman of the German parliament?s Europe Committee, estimates that the integration of US and EU financial markets alone could be achieved by 2015 and would cut trading costs on both sides by 60 per cent and the cost of equity capital by 9 per cent. Ms Merkel stressed that tariffs and customs duties were not part of her plan.Merkel talks about this in an interview with the FT's Quentin Peel. Some excerpts:
At the forthcoming EU-US summit we want to talk about ever-closer economic co-operation. Our economic systems are based on the same values. The EU and the US have sophisticated patent legislation. We have regulatory mechanisms governing our financial markets. We should be looking for ways to keep developing these together at a transatlantic level. We must watch out that we do not drift apart, but instead come closer together, where there are clear advantages for both sides. For example, it causes unnecessary friction for patent rules in the US to be structured differently from those in the EU. I think our economies can save a lot of money and effort, in stock market share offerings, for instance, or in setting technical standards. We face the same tough competition from Asian markets, and from Latin America in the future. We must join forces and co-operate, for instance in the fight for better intellectual property protection in the global market.Now I'm beginning to wonder if John O'Sullivan knew something I did not 18 months ago. I hope so -- for one thing, I could then look forward to Sherrod Brown complain about Polish plumbers.
One of the most remarkable examples of the farm lobby's power came in 2001 and 2002, when the existing farm bill was written, expanding payments again over the opposition of the White House and key lawmakers. Reformers see it as a cautionary tale. The architect of the legislation was Rep. Larry Combest, an aggie through and through, a West Texas Republican who came from three generations of cotton farmers and who took control of the House Agriculture Committee in 1999. Others on Combest's committee included a cattle rancher and tobacco farmer from Tennessee, a Missouri corn and hog farmer, and a government-subsidized rice farmer from Arkansas. The ranking Democrat, Charles W. Stenholm of Texas, had an ownership interest in cotton farms that got more than $300,000 in subsidies between 2001 and 2005, USDA records show. With help from a generous mandate from the House Budget Committee -- chaired by Jim Nussle (R-Iowa) -- Combest produced a new farm bill in 2001 authorizing an eye-popping $50 billion, 10-year increase in price supports and income supports for farmers. He boasted that the measure was "a major step away from Freedom to Farm." For one thing, the bill restored a key pillar of the pre-1996 program: cash payments that compensate for low crop prices. Thousands of farms were eligible even if they never grew crops. Budget officials estimated that change alone would cost $37 billion over a decade. The Bush White House disliked Combest's bill. Chief political adviser Karl Rove saw it as the antithesis of fiscal responsibility. "We're Republicans," aides remember Rove grumbling. The White House budget office issued a stinging critique, saying the bill was too costly and failed to help farmers most in need. Combest also faced strong opposition from a disgruntled group of Eastern and Midwestern lawmakers, and from senators who wanted tighter limits on what a farm could collect each year. But Combest had a strong hand. "He hijacked the process," said a former USDA official who spoke on the condition of anonymity because he still deals with Congress. At a meeting in Rove's office soon after the Sept. 11, 2001, attacks, Combest delivered a warning, according to several people with knowledge of the session. Unless the administration backed off, Combest warned, he and his farm-bloc allies would sink a top priority of President Bush's: legislation giving the president a free hand to negotiate a global trade treaty strongly favored by big corporations. "You have to ease up," one participant remembers Combest saying. Over the next several months, the administration laid off its public criticism of Combest's farm bill. Combest withdrew his opposition to trade-promotion authority, and it squeaked through the House by a single vote. He declined to comment for this article.
ME: There seems to be a catch-22 on reviving Doha. Other countries won't negotiate seriously with the United States unless they believe that we can get TPA renewed. At the same time, the only way that TPA is likely to be renewed is if Congressmen seen the outline of a Doha deal. How does one escape this conundrum? [USTR SUSAN] SCHWAB: Good question. [Long pause.]In this Wall Street Journal story by Greg Hitt, I see that Schwab has a longer answer (hat tip: Glenn Reynolds):
The Doha round of global trade talks stalled after hitting numerous roadblocks over the summer. Now the White House is working to revive negotiations, even as a new barrier looms: a Congress much more skeptical of free trade. Administration officials have stepped up the campaign to win support for its plan. Trade Representative Susan Schwab, who spent years as an aide on Capitol Hill, is wooing the incoming trade czars of the new Democratic Congress. Speaking recently to the U.S. Chamber of Commerce, she urged cooperation on trade and Doha. "We cannot let a strong, potential Doha deal slip through our fingers," she said. Treasury Secretary Henry Paulson is rallying support for Doha around the globe. In London, he said Doha remains the administration's "top trade priority," even with the change in control of Congress next year. In Geneva, U.S. negotiators, after months on the sidelines, are taking part in fresh talks with trading partners on thorny issues, such as cutting farm supports. The administration is banking that all the political maneuvering will help inject some momentum back into the talks by the spring. The goal isn't necessarily to finish a deal then, but to show enough progress to persuade skeptics in Congress to extend the president's trade-negotiating authority beyond June, when it is set to expire. That authority lets the president negotiate deals with other countries, and put them to Congress for an up-or-down vote -- without amendment. As a practical matter, nations generally don't like to sign deals that could be changed in Congress, so extending that authority would buy U.S. negotiators some extra time to seal a Doha deal. Whether the Bush administration is able to restart the Doha talks could serve as a measure of the muscle behind critics of free trade in the U.S. And if the impasse on Doha becomes permanent, it could herald the closing of the era of global economic integration that began after World War II. "A failure of Doha really would signal a crisis of confidence in the multilateral trading system," said C. Fred Bergsten, director of the Peter G. Peterson Institute for International Economics, a free-market think tank in Washington. "The WTO would continue to exist. But there would be a big loss of its standing and its credibility." (emphasis added)This isn't the worst idea in the world -- though I expect David Sirota to be popping a blood vessel sometime in the next week. With regard to Bergsten's prediction, I actually think the crisis of confidence is already upon us, if this Economist Intelligence Unit survey is any indication:
[T]he Economist Intelligence Unit conducted a wide-ranging survey of 286 executives spread across the world?s main trading regions. The key findings from the research are highlighted below. Protectionism is thought to be on the rise, particularly in the developed world. Just over 50% of survey respondents thought that protectionism was rising either significantly or moderately in developed markets, with only 16% believing that it was falling (30% regarded the level of protectionism in those markets as stable). A smaller proportion, although still narrowly the majority, of respondents (39%) thought that protectionism was increasing in emerging markets, whereas one-third reckoned it was declining. In practice, while protectionism is difficult to track, its impact on growth is significant. The impact on business can be severe... Economist Intelligence Unit forecasts show that a relatively modest backlash against globalisation could shave nearly a full percentage point off world GDP growth over the period 2011-2020. One in five executives to express a view (38 companies in total) say their company has had an investment deal fail in a certain market owing to local trade and investment rules over the past three years. More happily, 25% of the overall sample have entered a new market in that same period because of changes in the rules.
[A] funny thing happened to the 747 on the way to the graveyard: it found a new tailwind, and a strong one at that. Demand is growing for the new 747-8 Intercontinental, which was introduced a year ago. Boeing now has 73 orders for the plane after its latest lift yesterday from Lufthansa, the big German carrier, which announced it was placing a $5.5 billion order for 20 747-8s, and took options to buy 20 more.... In large part, the 747?s new lease on life is owed to global trade. Until the Lufthansa deal was announced, all 747-8 orders had been for the freighter version of the plane. Even the initial orders for the latest model were for air freighters, an unusual move in an industry that likes to kick off new models with orders from high-profile passenger carriers. But, technological advances, particularly next-generation fuel-efficient engines, improved the economics of operating a four-engine passenger plane like the 747. ?The new 747 is an inexpensive way for Boeing to capture some passenger orders, a lot of cargo orders and make a fair amount of money because of the Airbus 380 hiccup,? said Jon B. Kutler, chief executive of Admiralty Partners, a private investment firm in Santa Monica, Calif., that specializes in aerospace.... When Airbus announced the A380, Boeing looked flat-footed. For years, it appeared to dither about the future of the 747. It ordered up a number of 747-X studies of an advanced version of the plane, but came to no conclusion. But the dithering paid off. As time marched on, so did technology. And when Boeing shifted its emphasis into developing its new 787 Dreamliner, a wide-body midsize passenger plane, many of the technologies it pioneered for that plane could be adapted to the 747, including the fuel-efficient engines developed for the 787 and a new wing design that could stretch its flying range.... As manufacturing increasingly moves to Asia and worldwide commerce increases, the cargo market is growing at a faster rate than the passenger market ? about 6 percent a year, compared with passenger growth of about 4 percent, according to Air Cargo Management. (That said, the passenger market is about three times the size of the freighter market, with revenue of $185 billion last year.) At the moment, there are 481 747 freighters in use. This compares with 353 in 2000. While there are many smaller cargo planes ? and the combined total of all them exceeds the number of 747 freighters in the air ? the 747 is the only big cargo plane available and is the only plane that can be used for some large loads.
It?s our contention that even if the Democrats had not swept the House and Senate elections, the US would still face increasing difficulty as the political arena wrestles over the challenges of adjustment to globalization, especially dealing with a downside which includes mitigating pain at home, and enforcing better behavior by trading partners.Nelson is correct to point out that trade integration was not exactly going gangbusters prior to the midterms -- but then again, this FT story by Eoin Callan points out that it's possible for integration to slow even further:
The US Congress will reject two trade deals agreed with Colombia and Peru, leading Democrats said, in a significant blow to President George W. Bush?s agenda for his final two years in office. Democratic lawmakers drafted a letter to Mr Bush on Tuesday night signalling their opposition to the pacts because they lacked tougher labour standards, while a senior congressman rebuked the president for pressing ahead with today?s signing of the Colombian deal. The fissure worsens the outlook for the administration?s bilateral trade agenda in the wake of the Democrats? mid-term election sweep and will disrupt economic integration with the Latin American countries. Sander Levin, a leading Democratic voice on trade issues, said the letter would send a clear signal that ?the agreement would not receive the support of the vast majority of Democrats, as presently put together?.... The congressman said labour standards were at the ?core? of Democrats? objections - a sign that the influence of the labour movement within the party has been strengthened by the election result, which saw a notable rise in economic populism among voters.UPDATE: The Washington Post's Sibylla Brodzinsky and Peter S. Goodman summarize how this kind of thing is going to be perceived south of the border:
"We watch the news and we're nervous about what might happen with what we send to the United States," said Janeth Palacio Ramirez, 35, who supports her 15-year-old daughter and her elderly parents by punching zipper stops onto 7,000 pairs of jeans a day, earning about $200 a month. "Everything we make here goes there, so if there are problems with exports, we'll all lose our jobs.".... The fortunes of Colombia and Peru -- home to more than 72 million people -- may hang in the balance. So, too, might the nature of American engagement with Latin America, regional experts say. The rejection of trade pacts with these countries would humiliate their leaders at a time when they stand as bulwarks against the anti-American populism pressed by Venezuela's president, Hugo Chavez. Latin America was already recoiling at the prospect of the United States fencing its southern border against illegal immigration. Now, some see the nation walling off its huge marketplace, rescinding the promise of trade, long proffered by the Bush and Clinton administrations as a means of furthering development. "If you really look at the U.S. agenda in Latin America, trade is the only positive," said Michael Shifter, vice president for policy at the Inter-American Dialogue in Washington. "The rest is immigration, anti-narcotics. It's all negatives." Latin Americans, he said, may well start to question "how serious Americans are about having a constructive relationship."Hat tip: Pienso
Coffee has become a big testing ground for what it means to be an ethical consumer. The hugely successful Fair Trade brand allows many coffee addicts to get their fix with a clearer conscience, safe in the belief that no farmers have been exploited in the growing of it. So no wonder that Starbucks, an up-market global coffee chain, has reacted like a scalded barista to criticism from Oxfam, a development charity. Oxfam says that Starbucks is depriving farmers in Ethiopia of $88m a year, by opposing the Ethiopian government's efforts to trademark three popular varieties of local coffee bean. At least 60,000 customers worldwide have contacted Starbucks with expressions of concern, prompting the company to post leaflets in its stores defending its behaviour. It accuses Oxfam of ?misleading the public?, and insists that the ?campaign needs to stop?.... Starbucks also has questions about the different standards of fairness applied by the Fair Trade brand custodians in different parts of the world. It doubts even that the strategy of the Fair Trade movement, to secure farmers a premium over the market price for their beans, is the best basic approach. Starbucks prefers a code known as the CAFE practices (Coffee and Farmer Equity), which aims to help coffee farmers develop sustainable businesses through a mixture of technical support, microfinance loans, and investment in infrastructure and community development where the farmers live. So far from being a bloodthirsty exploiter happy to keep farmers in poverty, Starbucks emerges as a responsible firm approaching difficult questions in a thoughtful way. It wants to help its suppliers improve their lot. It is certainly no cheapskate. Starbucks says that last year it paid an average price of $1.28 per pound, 23% above the New York Board of Trade's benchmark ?C? price, for all its coffees. Starbucks's enlightened behaviour makes good business sense. The firm has positioned itself at the quality end of the market, where ethically-minded consumers are concentrated. It has absolutely no incentive to behave badly. Strikingly, another quality coffee producer, Illy Caf?, has similar issues with the Fair Trade movement, and also prefers to build sustainable coffee farming rather than indulge in simplistic Fair Trade posturing.Who's right? Decide for yourselves! Here's a link to the Oxfam campagn, and here's a link to Starbucks web page on sustaining coffee-producing communities. UPDATE: Joshua Gans has some thoughts on the matter that are worth checking out.
ME: There seems to be a catch-22 on reviving Doha. Other countries won't negotiate seriously with the United States unless they believe that we can get TPA renewed. At the same time, the only way that TPA is likely to be renewed is if Congressmen seen the outline of a Doha deal. How does one escape this conundrum? SCHWAB: Good question. [Long pause.]So, call me skeptical on the odds of Doha being completed anytime soon. I should stress that this isn't Schwab's fault... it's the hand she was dealt. One last thought: As David Kane has observed, both Schwab and I are graduates of Williams College. When I was intriduced to the ambassador, I mentioned that we shared the same alma mater. And, for just a brief second, the wised-up, cautious face of a politician was replaced by the joyful look of recognition when one Eph recognizes another Eph.
The US should offer to end distorting farm subsidies within five years in a bid to revive global trade talks and avoid a clampdown by the World Trade Organisation, according to a report released on Wednesday by an influential group of economists and agriculture officials. Agricultural subsidies have emerged as the key barrier to progress in the stalled Doha round of multilateral trade talks, though such unilateral action by the US would face fierce opposition as the administration weighs new farm legislation next year.... The year-long study by the task force recommends a raft of measures to replace the existing US subsidy programme, which fed around $20bn to farmers last year, most of it focused on commodity crops such as cotton and corn. Mike Johanns, the US agriculture secretary, has already stated that the system instituted by the existing farm bill in 2002 may have to change, targeting support at emerging sectors such as biofuels and avoiding further challenges by the WTO. Brazil has already won at a case against US cotton subsidies through the WTO, and there are fears that this could trigger further challenges against crops such as rice and soyabeans. ?If we don?t take the lead in reducing and eventually ending trade-distorting subsidies, the WTO legal system will do it for us,? said Gus Schumacher, a task force co-chair and former USDA under-secretary who managed the farm subsidy programmes. ?We?ll lose control of key farm policy tools and miss the export expansion opportunities in emerging markets that a successful Doha round could bring.? The health of the US farm economy has improved after two years of bumper crops, rising exports to emerging markets and the boom in corn-derived ethanol, but influential lobbyists such as the American Farm Bureau are pushing for the existing subsidy regime to be extended. The task force called for the system to be reformed to comply with WTO rules by introducing alternatives such as subsidised insurance programmes to counter poor harvests and sharp falls in global commodity prices. Other measures include new tax-efficient savings accounts for farmers and payments to support environmental initiatives.Here's a link to the report from the Institute for International Economics and
We propose that the entire grouping of product-specific, tradedistorting income and support programs, including countercyclical and loan deficiency payments, price supports, and federal crop insurance and disaster payments, be replaced with a new portfolio of approaches that are nondistorting and compliant with WTO green box rules, including:If it was up to me, I'd transfer more money away from agricultural progams, but that's a political nonstarter. The Chicago Council ask force has a lot of pragmatic ideas. Unfortunately, given the American Farm Bureau's happiness with the status quo and opposition to any change in subsidies prior to Doha's completion, I fear this approach is a nonstarter as well.Direct payments that are delinked from specific types of production and from market conditions so as to comply fully with green box standards and that are only used during a transition period until other approaches are fully developed A universal revenue insurance program covering all commodities on a multiproduct basis that allows farmers to purchase coverage at subsidized rates to protect against losses in price and in production A new land stewardship program that recognizes and rewards the value of the environmental contributions made by farmers and pays producers according to the kind and amount of environmental goods and services they provide Farmer savings accounts similar in structure to tax-deferred 401(k) accounts that are backed by government matching contributions and that could be tapped for a variety of farm household costs, including health care, education, or retirement savings A significant investment in public goods that benefit the entire farm sector, including research and infrastructure projects; not less than 20 percent of the federal baseline funds currently committed to trade-distorting domestic support programs (in addition to money spent on stewardship and conservation programs) should be redirected to investments in these sectorwide public goods Transition measures to protect farmers and owners of rented farmland against investment losses such as declining land values as a result of the proposed changes to support programsThe proper development, experimentation, and implementation of these new programs will take time, but should be accomplished within the five-to-six-year term of the next farm bill.
U.S. trade policy is at a crossroads between pursuing freer trade or fairer trade. A free trade approach would jumpstart Doha by cutting agricultural subsidies or allowing greater cross-border movement of foreign workers; pursuing free trade agreements with South Korea, India, or Japan if the Doha round cannot be restarted, and pledging an all-out political push for the renewal of TPA in early 2007. A fair trade approach would refuse to make further concessions in the Doha round of negotiations until developing countries and the European Union demonstrate a greater receptivity to American exports; halting bilateral free trade agreements with developing countries; and relying more on "managed trade" arrangements, unilateral trade sanctions, escape clauses and safeguard mechanisms to rebalance U.S. trade. The free trade orientation provides a more coherent set of economic policies, but carries a significant political risk. Adopting a free trade orientation will promote economic growth, control inflation, and reaffirm U.S. economic leadership to the rest of the world. At the current moment, however, freer trade runs against the tide of public and congressional opinion -- the political price of this policy will be steep. The fair trade orientation provides a more popular set of policies, but carries a significant policy risk. Adopting a tough position on slowing down imports while boosting exports will resonate strongly with many Americans. Because almost any trade barrier can be advocated on grounds of fairness to some group, however, special interests can easily hijack this policy orientation. Internationally, such a policy will be viewed as an abdication of U.S. economic leadership. Slowing down imports will encourage other countries to erect higher trade barriers against U.S. exports. Any kind of global trade war would severely damage the American economy -- and American workers.Go check it out.
?Ethical? coffee is being produced in Peru, the world?s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage. Industry insiders have also told the FT of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in protected rainforest. This casts doubt on the certification process used by Fairtrade and similar marks that require producers to pay the minimum wage. It also raises questions about the assurances certifiers give consumers about how premium-priced fair trade coffee is produced. As the board member of one Peruvian Fairtrade-certified coffee producer told the FT: ?No certifier can guarantee they will purchase 100 per cent of a co-operative?s production, so how can they guarantee that every bag will be produced according to their standards?? Though certified coffee makes up less than 2 per cent of the global coffee trade it has become increasingly mainstream as large retailers such as Starbucks and McDonald?s adopt it. The FT visited five Peruvian smallholdings, all of which have Fairtrade certification. Each farm hires 12-20 casual coffee pickers during the harvest season. All house and feed their workers, which allows them to deduct 30 per cent from their wages. After that reduction from the legal daily minimum wage for casual agricultural workers of 16 soles ($5), farm owners are still obliged to pay at least 11.20 soles a day. In four of the five farms visited by the FT, pickers received 10 soles a day, while the other farm paid workers 12 soles a day. Luuk Zonneveld, managing director of Fairtrade Labelling Organizations International, the Bonn-based body that sets fair trade standards, told the FT that the certification system ?is not fool- and leak-proof? but said the problem should be put in context. ?Poor farmers often struggle to pay their workers fairly,? he said. ?Why are casual labourers there at all? There are wider issues here. We need to ask why this goes on and what we can do to help.?Click here for a companion story by Weizman that gets at the details of the problem. The most interesting section of the latter piece comes here:
?No certifier is able to check that at no time are workers paid below minimum wage,? says Luuk Zonneveld, Managing Director of Fairtrade Labelling Organizations International (FLO) in Bonn. ?This issue comes up everywhere. Poor people struggle to pay their workers fairly.? The FT?s findings cast doubt on the certification process. ?The low pay issue wasn?t picked up in our audit because it wasn?t done at harvest season,? says Chris Wille, Chief of Sustainable Agriculture at Rainforest Alliance. However, Mr Wille says his organisation is aware of the problem and is developing a plan to tackle it. ?There no way to enforce, control and monitor ? in a remote rural area of a developing country ? how much a small farmer is paying his temporary workers,? says the founder of one Peruvian Fairtrade-certified coffee producer. ?Many farmers are earning less than minimum wage themselves.? Although farmers were paying casual labourers less than the minimum wage in four out of the five certified farms visited by the FT, Mr Zonneveld contends that low pay is not systemic in the coffee sector. That is a view contradicted by Eduardo Montauban, head of the Peruvian Coffee Chamber, a private exporters? group. ?No one in the industry is paying minimum wage,? says Mr Montauban. ?It?s simply not feasible for producers.?This suggests the following:
1) If fair traders really want workers to receive what they believe is a living wage, they're going to have raise the price of properlylabeled coffee; 2) The Rainforest Alliance can't be all that serious about enforcement -- why conduct an audit during off-harvest time unless you are trying not to find violations? 3) Simply demanding that coffee owners pay higher wages won't work -- that's not the market price for labor. This isn't because of evil multinational corporations -- it's the nature of commodity markets in general, plus the labor market in PeruIs there a solution to the problem? My solution would be to raise the price of fair trade coffee such that everyone in the distribution chain can receive higher wages, and let consumers decide whether the higher price is worth it. A perfect solution? Hardly -- but it's the one that is the most honest while not restricting employment in poor economies like Peru.
The WTO is surely one of the most cliche-riddled bodies in the world as diplomats compete in a game of words to describe sometimes impenetrably complex trade issues. Even if the metaphors only sometimes add substance, catchy phrases usually mean more to people outside the rarified air of global commerce. The WTO has been saying for months that "time is running out." The organization's former director-general Supachai Panitchpakdi cried crisis over a year ago, warning his finger was hovering over "the panic button," even if he had yet to press it. Since then, the Geneva-based body has approached "the point of no return," reached "the edge of the cliff," "crossed the Rubicon" and faced its share of "do-or-die" deadlines. The WTO's current chief Pascal Lamy has alternately described himself as the organization's shepherd, nurse, midwife and conductor. He is also fond of referring to the round as a marathon or a jet plane, and the organization as a football team. Does that suggest that he is the pacesetter, pilot or coach? Lamy's biggest test in metaphor mechanics came after the WTO's trade summit last year in Hong Kong, more noteworthy in the end for its large protests and political finger-pointing than any market-opening deals. Citing the gathering's minor achievements, he declared the round back on track, even though the tough decisions were pushed back until this summer. "We now have enough fuel in the tank to cruise at the right negotiating altitude now," he said. With the year's first deadline in April fast approaching, top trading officials jumped on the bandwagon, adding new turns of phrase if little substance. India's Trade and Industry Minister Kamal Nath _ who was the first to downplay hopes ahead of Hong Kong, or "recalibrate the level of ambition" _ warned of the EU and U.S. creating a "suicide round." Former U.S. Trade Representative Rob Portman called April 30 the "drop dead date" for negotiations and six top trading powers met in London in March to break the logjam. After apparently little progress was made, all were eager to cite progress. "We made progress on narrowing the concepts of numbers," Portman told reporters afterward. He didn't explain further. Not to be outdone, Nath esoterically added that the meeting was useful for defining "elasticities;" Brazilian Foreign Minister Celso Amorim cited the lack of "a click" necessary to reach a deal. After Lamy cancelled the "drop dead" session, he called this week's gathering _ dubbed in WTO jargon the "full modalities meeting" _ in its place. In recent weeks, Lamy has sounded the warning anew. The marathon runner has warned of "hitting the wall," a runner's term for the point of near exhaustion toward the end of the race. In May he switched to security alert levels, saying that "we are now in the red zone" due to a lack of movement. However, he suggested there was still room to recover because countries had yet to reach "the red part of this red zone."Despite my flippancy about the rhetoric, the collapse of the Doha round would be a very, very, very bad thing. To understand why, consider Greg Mankiw's point: [S]uccess in the Doha round of international trade talks would give the world more every year than what [Warren] Buffett can give once after a lifetime of being the world's most successful investor.
President Bush today selected U.S. Trade Representative Rob Portman to be the new director of the Office of Management and Budget, moving quickly to revamp his team now that his new chief of staff is in place.... Bush, at a morning announcement at the White House, said Portman would "have a leading roll on my economic team." As Portman's replacement as trade representative, Bush chose deputy trade representative Susan Schwab, a veteran from the administration of George H.W. Bush who has also worked in the private sector for Motorola, among other companies. Schwab was president and chief executive officer of University System of Maryland Foundation before joining the current Bush administration.Here's a link to the transcript of the announcement. Portman has done an excellent job at USTR for the brief time he was there, and his move to OMB might be, on the whole, a good thing for fiscal policy. That said, Bush and Bolten have decided to switch teams at USTR in the weeks before various deadlines for the Doha round of trade talks come up. This is a bad, bad sign for the likelihood of those negotiations to succeed. UPDATE: Many commenters point out that Schwab will likely preserve continuity on trade talks. This may be true, but the optics look very bad to other countries and to Congress. Two FT reports -- one by Alan Beattie and one by Caroline Daniel -- make this point. Beattie first:
Rob Portman?s unexpected removal from the post of US trade representative on Tuesday evoked concern among governments and trade experts that the US was downgrading the importance of the so-called ?Doha round? of World Trade Organisation talks.... Peter Mandelson, the EU trade commissioner, issued a barbed statement that qualified praise of Mr Portman and Susan Schwab, currently deputy trade representative and Mr Portman?s nominated replacement, with implied criticism about the timing of the move. ?I have very much enjoyed working with Rob Portman and I shall be sorry to see him go from this post,? Mr Mandelson said. ?We will of course manage without him, but at this stage in the round, it would have been easier to manage with him.? Privately, other EU officials were less diplomatic, suggesting that the move sent out a clear signal that the US regarded the Doha round as dispensable. ?On the face of it, this looks like bad news for the talks at a time when negotiations are at a fragile point and it is bound to lead to further uncertainty,? one official said. The official said that the one bright spot could be that the US would use the change of personnel as cover to moderate its demands for wholesale farm liberalisation in the Doha round.... Lobbyists and trade experts in Washington said that Ms Schwab was technically very well qualified to succeed Mr Portman. But several said that although she had good contacts on Capitol Hill, she would not enter the job with the same political influence as her predecessor.... Tom Buis, president of the National Farmers Union, said: ?To me it sends a signal that things aren?t moving as smoothly as anticipated on the trade deal. It may be a realisation that Doha is not going to be the success that the administration hoped it would be.?The European carping should be taken with a small grain of salt -- they'll jump on any excuse to evade blame for Doha collapsing. Now Daniel:
The US on Tuesday named Rob Portman, the politically savvy trade representative, to head the White House budget office, a move that signals growing concern over runaway federal spending and a downgrading of trade policy in the administration?s second term.... ?There is an awful lot of negativism now about the prospect of trade liberalisation and a backsliding on trade,? a leading Republican strategist confirmed. ?There is a sense of giving up on bilateral trade deals and on Doha.? Clay Shaw, a Florida Republican and chairman of the House Ways and Means Trade Subcommittee, told Congress Daily: ?If the Doha round is doomed for failure ... this may be a case of looking for where [Portman?s] talents, which are extraordinary, can best be used.?
Stiglitz and Charlton show that standard economic assumptions are wrong when it comes to many developing economies. When markets in sub-Saharan Africa and elsewhere are opened, people often can't move easily to new industries where the nation has a comparative advantage. Transportation systems that might get them there are often primitive, housing is inadequate and job training is scarce. They're vulnerable in the meantime because safety nets are weak or nonexistent. Most people lack access to credit or insurance because financial institutions are frail, so they're unable to start their own businesses or otherwise take advantage of new opportunities that trade might bring. Many poor countries are already plagued by high unemployment, and job losses in the newly traded sector might just add to it. Hence, the authors argue, the pace at which poorer nations open their markets to trade should coincide with the development of new institutions ? roads, schools, banks and the like ? that make such transitions easier and generate real opportunities. Since many poor nations can't afford the investments required to build these institutions, rich nations have a responsibility to help.... Moreover, they warn, one size does not fit all. Richer nations should not force all poorer nations to abide by the same market-opening rules and timetables. Poorer nations have different needs. They are at different stages of economic development (subsistence agriculture in much of Africa and parts of Asia, export-oriented agriculture in Latin America and other parts of Asia, early-stage industrialization elsewhere). They have different political and institutional capacities.The problem with this argument is the same as the problem with Stiglitz's Globalization and Its Discontents and Sachs' An End to Poverty -- they recognize that markets in the developing world lack vital infrastructure, but fail to recognize that developing governments suffer from even greater institutional deficits. Expecting these governments to determine when their proteted sectors should become unprotected from a welfare economic perspective is wishful thinking -- in large part because these governments will not want to give up the rents that they extract from trade protection. [But states like Japan and South Korea pulled this off!--ed. That's a matter of some debate, but accept the premise as given. The states that could pull this off have already done it. I ask my readers to identify states with well-developed institutional capabilities that have yet to hit the fast track of economic growth.] While Stiglitz and Charlton are at it, they should also wish for some ponies.
Aid for Trade should aim to help developing countries, particularly LDCs [Least Developed Countries], to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade. Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA [Doha Development Agenda], particularly on market access. However, it can be a valuable complement to the DDA.That's still a bit vague, so I've asked Paul Applegarth, a Senior Transatlantic Fellow at the German Marshall Fund of the United States -- and the former CEO of the Millennium Challenge Corporation -- to explain the idea in a bit more detail:
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.